New Jersey’s Appellate Court Finds Arbitration Provision in Employee Handbook Containing Boilerplate Disclaimers Unenforceable

Paula Lopez, December 4, 2015.

Recently, New Jersey’s appellate court ruled that an arbitration provision contained in a company’s employee handbook, the receipt of which was electronically acknowledged by its employees, is unenforceable because the handbook also contained a broad disclaimer disavowing the creation of a contractual relationship.  Because of the disclaimer language and the absence of a signed arbitration agreement, the court found that plaintiff never agreed to arbitrate the claims against her employer. New Jersey employers seeking to have claims brought by employees arbitrated should review their arbitration provisions to ensure that they meet the standard for enforceability set out by the court in C.M. v. Maiden Re Insurance Services, LLC, et. al.

Maiden Re Insurance involved claims brought by a former employee for discrimination based on her disability in violation of the New Jersey Law Against Discrimination. The plaintiff, C.M., was suffering from alcoholism and informed her employer that she was receiving counseling and was going to need time off to receive treatment at a residential rehabilitation facility.  Five days after discussing her condition with her employer, the plaintiff was terminated.  After C.M. filed an action against her employers for discrimination, Maiden filed a motion to have the action dismissed and sent to arbitration, which was granted by the Law Division judge based on the arbitration provision contained in the employee handbook.

C.M. appealed the decision directing arbitration on the basis that she did not agree to be bound by the terms of the employee handbook and that the electronic acknowledgment she submitted did not create an enforceable agreement to arbitrate because it in no way referenced the arbitration provision. Maiden, on the other hand, argued an agreement to arbitrate was created because the arbitration provision was contained in the handbook, and plaintiff “took deliberate steps [to indicate] she received, reviewed and understood the handbook and the arbitration provision contained therein.”  In determining whether an enforceable agreement to arbitrate was created by the arbitration provision included in the employee handbook, the Appellate Division agreed with C.M. that no agreement to arbitrate was made.

The court emphasized that “an agreement to arbitrate must be a product of mutual assent,” meaning that the party relinquishing or waiving a right must have full knowledge of the rights being waived and intended to do so.  C.M.’s acknowledgment that she had received the employee handbook was found by the Appellate Division to be insufficient evidence of the existence of a binding agreement to arbitrate. Decisive to the court’s ruling was the plain language in the handbook drafted by Maiden, which states “with unmistakable clarity, that Maiden did not intend the handbook to create a binding agreement.”  Specifically, the court pointed to the handbook’s disclaimer provision which included the following statements:

• “The policies outlined in this handbook should be regarded as management guidelines only…”
• “The provisions of the handbook are not intended to create contractual obligations with respect to any matters it covers.  Nor is the handbook intended to create a contract guaranteeing that employees will be employed for any specific time period.”

The Appellate Division found that “[t]he employee handbook cannot be a binding agreement with respect to the arbitration provision, and an unenforceable document merely containing ‘management guidelines’ for the rest of the provisions.”  The court’s decision makes it clear that employers cannot have it both ways.  They cannot insulate themselves from creating an employment contract with their employees by including broad disclaimer language to ensure “at-will employment,” and, at the same time, argue that a binding contract was created with respect to the employee’s obligation to arbitrate.

This decision is in stark contrast to the trend of cases favoring arbitration of employment claims and enforcing arbitration agreements entered into as a condition of employment, and which include a waiver of class and collective action claims against employers. Maiden Re Insurance reminds employers that despite the public policy in favor of arbitration, courts will not hesitate to refuse enforcement of an arbitration provision that is not expressly agreed to by the party against whom enforcement is sought.

Therefore, employers who intend to rely on arbitration provisions that are part of a handbook should ensure that the agreement/provision being relied on clearly identifies the employee’s rights that are being relinquished and that the employee expressly agrees to be bound to the arbitration provision.  A good practice would be to carve out the arbitration provision from any general disclaimer language that is included in the handbook and to have the employee sign a separate agreement to arbitrate that clearly identifies the rights that the employee is agreeing to surrender.